GBP/USD climbs as tariff relief boosts market mood, all eyes on UK CPI

• GBP supported by weaker USD as targeted tariffs ease global trade tension and lift sentiment.
• Traders brace for UK CPI and Reeves' Spring Budget; any gilt market jitters could weigh on Sterling.
• Fed officials cautious on inflation outlook, limiting dollar downside ahead of key PCE data release.

The Pound Sterling advances against the US Dollar on Tuesday due to an upbeat market mood, as traders are relieved of US reciprocal tariffs, which are expected to be targeted on some of the US trading partners. This weakened the Greenback as seen by the GBP/USD trading at 1.2950, up 0.22%.

Sterling edges higher to 1.2950 amid calm markets, though looming inflation data and budget risks cap gains

The economic docket is empty in both sides of the Atlantic, with traders eyeing the release of UK inflation figures on Wednesday, and the UK Spring Budget. The Consumer Price Index (CPI) in February is expected to dip from 3% to 2.9% YoY, while core figures are projected to cool from 3.7% to 3.6% in the twelve months to February.

The UK Chancellor of the Exchequer, Rachel Reeves, is expected to outline spending cuts and belt-tightening measures in the upcoming budget to meet her financial targets.

Francesco Pesole, currency strategist at ING, said, "There's a very fine line not to unnerve the gilt market," which could knock confidence in the UK and weigh on the pound.

In the US, Federal Reserve Governor Adriana Kugler stated the uptick in goods inflation is "unhelpful." She said, "In certain subcategories, there is evidence that inflation reaccelerated in recent months," adding that she's paying close attention to inflation expectations.

Recently, New York Fed President John Williams stated that companies and households are experiencing heightened uncertainty about the future of the economy.

Even though both Fed policymakers struck a neutral tone, the GBP/USD has failed to add to recent gains. Fears that inflation in the US could accelerate could prompt traders to buy the US Dollar due to lower chances that the Fed might reduce borrowing costs.

Ahead this week, the US economic docket will feature additional Fed speakers and the release of the Fed's preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index.

GBP/USD Price Forecast: Technical outlook

The GBP/USD has been consolidating near the 1.2900-1.2950 area for the past two days, with bulls remaining unable to decisively break above the 1.3000 level. In that outcome, the pair would resume its bullish bias, and challenge November's 2024 peak at 1.3047. Conversely, if sellers drive the exchange rate below 1.2950, the first support would be the March 24 swing low of 1.2885. A breach of the latter will expose the 200-day Simple Moving Average (SMA) at 1.2799.